If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Enbridge (TSE:ENB), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Enbridge, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.05 = CA$9.2b ÷ (CA$201b - CA$16b) (Based on the trailing twelve months to June 2024).

So, Enbridge has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 9.4%.

Check out our latest analysis for Enbridge

In the above chart we have measured Enbridge's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Enbridge .

What Can We Tell From Enbridge's ROCE Trend?

The returns on capital haven't changed much for Enbridge in recent years. Over the past five years, ROCE has remained relatively flat at around 5.0% and the business has deployed 22% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Enbridge has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 66% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to know some of the risks facing Enbridge we've found 3 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

While Enbridge may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.